Vocab

Question 1

Actual Notice

Answer 1

Notice which is not recorded in public records.

Question 3

Adverse Action (as defined in ECOA)

Answer 3

A refusal to grant credit in the amount or on the terms requested in an application.

Question 4

2-1 Buydown

Answer 4

A type of mortgage with a set of two initial temporary interest rates. In a 2-1 the interest for the first year is 2 percent lower than the permanent interest rate, and 1 percent lower the second year. The initial interest rate reductions are either paid for by the borrower in order to help them qualify for a mortgage (their debt-to-income ratios would be based on the first year’s reduced interest rate), or might be paid for by a builder as incentive to purchase a home.

Question 5

Negative Amortization

Answer 5

occurs in a mortgage repayment plan in which the borrower makes payments that amount to less than the interest due. The unpaid interest is added to the outstanding loan balance, causing the outstanding loan balance to increase instead of decrease.

Question 7

Accrued Interest

Answer 7

Interest earned since last settlement date but not yet due or payable.

Question 8

Amortization

Answer 8

process of fully paying off a loan in regular payments over a specified period of time. The portion of each monthly payment that goes to reduce the outstanding principal balance gradually increases with each payment throughout the life of the loan, and the portion used to pay interest gradually decreases each month.

Question 9

Escrow Impounds

Answer 9

usually collected by the lender as part of the monthly mortgage payment. They include the monthly amount for property taxes, hazard insurance and flood insurance, if required.

Question 10

PITI

Answer 10

Principal, Interest, Taxes and Insurance (Hazard, Flood and Mortgage). It’s also called the monthly housing expense. PITI also includes any monthly homeowner’s association fees.

Question 11

P&I (Debt Service)

Answer 11

monthly principal and interest payment. Late fees are either 4% or 5% of the debt service, not the PITI.

Question 12

Senior Mortgage

Answer 12

A mortgage that is secured by a lien on a property and that has preference to another mortgage on the same property. In general, the senior mortgage is the original mortgage; one takes out a junior mortgage to pay for home repairs or for other reasons. In the event of default or bankruptcy, the senior mortgage must be paid entirely before the junior mortgage is paid at all. As a result, a senior mortgage carries a lower interest rate than a junior mortgage

Question 13

Junior Mortgage

Answer 13

has a lower, or more subordinate, lien position than the Senior Mortgage. A mortgage secured by a lien on a property that is subordinate to another mortgage on the same property. One may take out a junior mortgage to pay for home repairs or for any number of other reasons. A junior mortgage carries a higher interest rate than a primary mortgage because the lien is less secure. A second mortgage is a junior mortgage, as are third and fourth mortgages

Question 14

Payment-Option ARM

Answer 14

nontraditional adjustable-rate mortgage that allows borrowers to pick their type of payment each month. Possible options may include a minimal payment based on a starter interest rate, an interest-only payment or a fully amortized payment. If the minimum payment option is less than the interest accruing on the loan, the difference is added to the loan balance, which results in negative amortization. The interest-only option avoids negative amortization but doesn’t provide for principal amortization. If the borrower continually chooses the interest-only option, the required monthly payment amount eventually will be recast so that the outstanding balance fully amortizes over the remaining loan term.

Question 15

Reduced Documentation

Answer 15

loan feature that is commonly referred to as “low doc/no doc,” “no income/no asset,” “stated income” or “stated assets.” For mortgage loans with this feature, a lender sets minimal documentation standards.

Question 16

Simultaneous Second-Lien Loan ( “Piggyback” Loans)

TILA/RESPA Implementation:

Answer 16

lending arrangement where either a closed-end second-lien or a home equity line of credit (HELOC) is originated simultaneously with the first lien mortgage loan, typically in lieu of a higher down payment. Get two loans so borrower don’t have to pay PMI. The 80,10,10 rule

Question 17

Balloon Mortgage

Answer 17

partially amortized loan. Monthly payments are usually calculated as if it had a 30-year term, but the balance of the loan will come due before that time and has to be paid in one lump sum; 5, 7 and 10-year terms are popular. Interest rates are typically lower than on a fixed-rate mortgage. A 360/180 loan is a balloon amortized over 30 years with a lump-sum payment due after 15 years. Balloon mortgages are accepted as Qualified Mortgages in a very few circumstances including loans made by small lenders or a short term (12 months or less) bridge loan to provide closing funds while the buyer is in the process of selling another house. In all cases of Qualified Mortgages, the borrower must show a documented ability to re-pay the loan.

Question 18

Adjustable-Rate Mortgage (ARM)

Answer 18

consists of two parts: an index that fluctuates and a margin that’s fixed.

Index + Margin = Fully Indexed Rate

Interest rates are usually lower for ARMS than for fixed-rate mortgages. Some mortgages may allow an ARM to be converted to a fixed-rate loan during designated times. This may involve the payment of a fee. Some of the major features of an ARM include the following:

The index is a known, reliable, fluctuating financial indicator expressed as a percent. Two common indices are the U.S. Treasury Securities rate and the London Inter-Bank Offered Rate (LIBOR). The index used must be beyond the control of the lender and verifiable by the borrower. If the index has increased at the start of the adjustment period, the mortgagor will have a higher monthly mortgage payment. If the index has decreased, the monthly mortgage payment will be less.

The margin is a fixed percentage rate (typically 2% to 3%) that is added to the specified index at each adjustment period to determine the fully indexed rate. It reflects the lender’s profit and overhead. The margin is expressed in basis points where 100 basis points = 1%.

The adjustment period specifies the initial term before the first interest rate adjustment. After this first period, the loan typically adjusts every year. Common terms are one year, three year and five-year ARMs. A five-year ARM will have a fixed interest rate for the first five years and adjust annually after that. This is referred to as a 5/1 ARM.

Rate caps limit how much the interest rate can change at each adjustment and over the life of the mortgage. Rate caps typically are 1% to 3% per adjustment period, and 5% to 6% over the life of the loan. A 2/3/6 cap allows the loan to adjust a maximum of 2% the first adjustment period, 3 % for subsequent adjustment periods and a lifetime cap of 6%.

Borrowers must be notified of a rate change six months before the initial reset.

​• ​Payment caps limit the amount the monthly payment may increase at the time of each adjustment. Any interest that is not paid because of the cap is added to the balance of the loan. A payment cap can limit the amount of the monthly payment increases, but it can also add to the loan balance. If that occurs, it results in negative amortization.

Question 19

Bi-Weekly Mortgage

Answer 19

A biweekly mortgage is a mortgage product that allows the borrower to make payments every two weeks rather than once a month. A biweekly mortgage means that the borrower is paying every two weeks, or 26 half payments. The result is effectively 13 full payments over a 12-month period, accelerating payoff of the loan.

Question 20

Term Mortgage

Answer 20

non-amortizing interest-only loan. The balance is due at the end of the term in a balloon payment.

A term mortgage is one that is generally rather short, usually five years in length or less. It differs from the more traditional type of mortgage in that payments are not amortized. Instead, only the interest of the mortgage is paid off during the mortgage’s term. When the mortgage reaches the end of its term, or “matures,” the entire principal is due. This lump sum payment due at maturity is known as the balloon payment.

Question 21

Reverse Mortgage/ Home Equity Conversion Mortgage (HECM)

Answer 21

negatively amortizing loan that allows elderly homeowners to convert the equity in their primary residence into a monthly cash flow or a line of credit. ThIs type of loans have no maximum payout. The requirements are:
-Youngest borrower is at least age 62.
-Home is a 1-unit primary residence, including condominiums.
-No existing mortgage on the property or one that can be satisfied with the first reverse mortgage payment.
-Borrower must receive counseling from a HUD-approved home counseling agency.
​-Borrower must maintain hazard insurance, pay property taxes, pay monthly mortgage insurance premiums (MIP, added to loan balance), and possibly pay monthly servicing fees, which would also be added to the loan balance.
-Payments can continue for as long as the borrower lives, or the property is vacant for more than 12 consecutive months for health reasons or the borrower violates the terms of the mortgage (hazard insurance, property tax, etc.).
-New FHA appraisal.

Question 22

Reverse mortgage choice of payout plans (that can be changed by borrower during the course of the mortgage) include:

Answer 22

Tenure. Payments continue for the life of the borrower as long as it remains the principal residence.
​-Term. Borrowers select the desired number of monthly payments. ​
-Line of Credit. Borrowers withdraw money as needed.
-Modified Tenure. Tenure combined with a line of credit.
​-Modified Term. Term combined with a line of credit.

Question 23

Reverse mortgage Disclosures include:

Answer 23

• Notice of the Right of Rescission.
• ARM disclosure (if borrower selected an adjustable rate mortgage). -Initial payment plan details.
• HUD-1 closing statement. ​
• HUD-1 certification statement.

Question 24

Reverse Mortgage Closing costs may include fees for:

Answer 24

-Appraisal.
-Credit report.
-Deposit Verification.
-Document preparation.
-Property survey.
-Title examination and title policy (equal to the full value of the house at the time of closing).
-Attorney.
-Settlement.
-Mortgage broker (if retained independently by the borrower).
-Recording fees and taxes.
-Property tests or treatments.
​-Courier services.
-Reverse mortgage advertisements must NOT: Misrepresent a government affiliation.

Question 25

Reverse mortgage interest

Answer 25

can be fixed or an ARM that adjusts annually with a 2% annual cap and a 5% lifetime cap. Lenders may also offer an ARM that adjusts monthly with only a lifetime cap. The type of interest cannot be changed after closing,

Question 26

Reverse mortgage advertisements must NOT:

Answer 26

• Misrepresent a government affiliation.
• Provide inaccurate information about interest rates.
• Provide misleading statements concerning the costs of reverse mortgages. ​

Question 27

Reverse Mortgage must not misrepresent the advertised amount of cash or credit available to a consumer:

Answer 27

Lenders calculate how much a borrower is authorized to borrow overall, based on age, the interest rate, and the value of the home. This number is known as the initial principal limit, and it increases every year of the loan. Limits on first year withdrawals are: 60% of the initial principal limit. ​• ​Enough to pay off an existing mortgage (if it’s more than the allowable 60%) plus 10% of the principal limit. This loan doesn’t have to be repaid until the last borrower dies or the home is vacant for more than a year. The owner retains the deed and possession. These are non-recourse loans since the heirs are not personally liable for the note; if the lien is greater than the market value of the home, the lender must accept the sold price and cannot file for a deficiency judgment against the heirs. The HECM loan is the FHA’s reverse mortgage loan.

Question 28

Buy-Down Mortgage

Answer 28

begins at a rate below the existing market rate and then rises, usually every year, at a predetermined amount. A developer may work with a lender and in return for a certain volume of business, a lender may offer lower interest rates for two or three years if a borrower uses the developer’s financing. This is good for the borrower and good for the developer because the financing terms are likely to attract more buyers to the properties.

Question 29

Package Mortgage

Answer 29

Can be either amortizing or non-amortizing, and the lien includes personal property as well as real property. This is more common in commercial lending than residential; for example, a mortgage on a restaurant may include the ovens and other restaurant equipment.

Question 30

Graduated Payment Mortgage (GPM)

Answer 30

Payment starts low and increases over time. The initial payment is used for qualifying purposes so this might be a good product for individuals who expect their income to increase over time.

Question 31

Wraparound Mortgage

Answer 31

Usually a type of seller financing in which the seller finances enough money to cover the existing loan balance as well as any additional funds needed by the borrower. The original loan can’t have a due-on-sale clause, since the seller will continue to make these payments after title is transferred to the new purchaser. This only makes sense if the interest rate on the wraparound mortgage is higher than the rate on the existing lien, because that is how the seller/lender is making a profit.

Question 32

Growing Equity Mortgage (GEM)

Answer 32

Fixed interest rate and increasing payments so that the loan balance is paid off more quickly.

Question 33

Home Equity Line of Credit (HELOC)

Answer 33

Form of revolving credit in which the home serves as collateral. The amount of the available credit line usually depends on the borrower’s equity in the home (appraised value – loan balance = borrower’s equity). Funds can be withdrawn for a stated period of time, such as 10 years, after which  the repayment period starts (also a stated number of years). Interest rates tend to be varied, so the repayment amount may vary from month to month. Lenders can cancel the credit line at any time.

Question 34

Bridge Loan (swing loan)

Answer 34

“bridges” the gap between the purchase of a new home and the sale of the borrower’s current home. The borrower’s current home is used as collateral, and the loan is used to close on the new home before the current home is sold. The borrower usually needs to have a signed contract to sell his current house. 

Question 35

Construction Loan

Answer 35

usually a short-term temporary loan in which money is advanced in stages as the construction progresses, and the borrower pays the interest on each draw. Because there’s usually no structure yet to act as collateral, interest rates, down payments and borrower credit score requirements tend to be higher than residential purchase mortgages.

Question 36

Construction-to-Permanent Loan

Answer 36

lenders sometimes allow a borrower to apply for two types of loans with one application. Payments on the permanent loan begin after the final inspection or issuance of the Certificate of Occupancy. Creditors are allowed to treat multiple advance loans to finance construction of a dwelling that may be permanently financed by the same creditor either as a single transaction or as more than one transaction.

Question 37

Interest-Only Mortgage

Answer 37

- borrowers pay only the monthly interest due during the specified term of the loan. When the term is about to expire, borrowers may be given several  options: - Make a lump sum loan payoff. - Refinance into an amortizing fixed rate or adjustable mortgage. ​ - Start paying off the balance at a higher interest rate. Interest-only mortgages are not considered to be Quality Mortgages, so it might be difficult finding a lender willing to assume the risk.

Question 38

Jumbo Mortgage

Answer 38

loans that exceed the Fannie Mae lending limits. Interest rates may be higher on these loans than for conforming mortgages.

Question 39

Borrowers must be notified of an ARM rate change how many months before the initial reset?

Answer 39

6 months

Question 40

What is the minimum down payment usually required for non-owner occupied rental properties?

Answer 40

20%

Question 41

The maximum VA seller concession is:

Answer 41

4% + standard closing costs

Question 42

The maximum FHA seller concession is:

Answer 42

6%

Question 43

Does FHA maximum loan amounts include the Up Front Mortgage Insurance Premium?

Answer 43

No

Question 44

Does VA loans have a insurance fee?

Answer 44

No, it has a Nonrefundable variable funding fee required at closing but it’s waived for disabled vets or surviving spouse

Question 45

A VA appraisal is known as a:

Answer 45

Certificate of reasonable value (CRV) or notice of reasonable value (NOV)

Question 46

The max FHA seller concession?

Answer 46

When buying a home, there is a practice known as the seller concession, which permits an FHA home loan to move forward with the seller paying some of the closing costs on behalf of the borrower,

Question 47

What is the maximum va seller concession?

Answer 47

Seller concessions are when a VA home buyer asks the home seller to pay costs associated with the VA Loan on the home buyer's behalf. The VA permits seller concessions, but requires that seller concessions do not exceed 4% of the loan amount.

Question 48

You are pre-qualifying a borrower for a purchase loan. She has debt equaling $950 each month and gross monthly income totaling $5,200 each month. What is the maximum qualifying house payment, including principal, interest, taxes and insurance on a conventional loan?

Answer 48

Two calculations need to be done: $5,200 x 28% = $1,456, then $5,200.00 x 36% = $1,872-$950 = $922. Take the lower of the two. If you did not complete both calculations, you might have allowed Sue to have a payment of $1,456; by the time you added the debt and divided by the $5,200, your back ratio would be too high ($5,200 x 28% = $1,456 + $950 = $2,406 ÷ $5,200 = 46%).

Question 49

A borrower closes a loan with ABC Mortgage. His name is NOT on the National Do Not Call Registry NOR on ABC's internal do not call list. ABC Mortgage can call the borrower to solicit new business

Answer 49

A consumer who does not place his name on either the National Do Not Call Registry or a company’s internal do not call list has no protection from phone calls. ABC can call the borrower indefinitely.

Question 50

The Privacy Rule of the Gramm-Leach-Bliley Act requires that financial institutions provide the consumer with a Consumer Privacy Policy

Answer 50

According to the Gramm-Leach-Bliley Act, this policy is required to be provided before disclosing information to non-affiliated third parties.

Question 51

During the loan process, you find HMDA government monitoring information on

Answer 51

Under HMDA guidelines, Section X of the standard Residential Loan Application must be filled out even if the borrower does not wish to furnish the information. However, in the case of a face-to-face Page 18 interview, the loan officer can still mark the “I do not wish to furnish this information” box, but must fill in the application according to a visual observation or the borrower's surname

Question 52

Fannie Mae may require what to protect lenders against loan defaults by borrowers?

Answer 52

Both Fannie Mae and Freddie Mac require private mortgage insurance on home loans with less than 20% down.

Question 53

What is the most common appraisal approach used in appraising single-family housing?The sales comparison approach is most common, since it compares the property to recent comparable property sales. There is no appraisal approach called the highest and best use approach.

Answer 53

The sales comparison approach is most common, since it compares the property to recent comparable property sales. There is no appraisal approach called the highest and best use approach.

Question 54

Which federal legislation requires that a "Notification of Action Taken" form be delivered to the applicant within 30 days of the adverse decision? Respa, ecoa, tila, hmda

Answer 54

The Equal Credit Opportunity Act requires the lender to provide the borrower an approval, notice of incomplete application, or a reason for rejection of credit in writing within 30 days of loan application.

Question 55

Which of these actions would indicate that a loan office is NOT committed to FACTA compliance? Choose only ONE best answer. A erasing electronic records B hiring a document disposal company for weekly pick up C placing locked shredding boxes throughout the office D putting files in an unlocked drawer at the end of each work day

Answer 55

Correct answer is D. FACTA addresses the problem of identity theft, and an office whose employee puts files in an unlocked drawer would not be in compliance. If someone does not personally secure his files, the confidential information could be accessed for identity theft after work hours by any unscrupulous office worker with keys or access codes to the building.

Question 56

Which type of mortgage is funded by the United States Department of Agriculture? Choose only ONE best answer. ``` A Section 502 Loan B FHA mortgage C Rural home mortgage D VA mortgage ```

Answer 56

USDA Loans (aka Section 502 loans) are funded by the USDA

Question 57

The SAFE Act is part of what larger law?

Answer 57

The Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE Act, is a key component of the Housing and Economic Recovery Act of 2008.

Question 58

A borrower's stable monthly income is $6,800. Every month he pays: $485 car payment, $200 revolving credit payment, and $1,500 alimony. What is the maximum monthly mortgage payment for which he would qualify on an FHA mortgage loan?

Answer 58

A Using the payment-to-income ratio of 31% for an FHA loan, we get $2,108. But using the total debt service ratio of 43% for this loan, we find: $6,800 (income) multiplied by 0.43, which equals $2,924. From that, you subtract monthly debts (485 + 200 + 1,500) which total $2,185, leaving $739.

Question 59

Which fee would NOT be considered a finance charge and would NOT be part of the APR calculation? ``` A discount points B escrow deposit for property taxes C mortgage insurance D origination fee ```

Answer 59

Escrow deposits are never part of calculating the APR.

Question 60

The SAFE Act mandates specific topics that must be covered as part of a state-licensed mortgage loan originator's continuing education every year. Which topic is NOT required? Choose only ONE best answer. ``` A conventional mortgage products B ethics C federal law D nontraditional mortgage products ```

Answer 60

The SAFE Act does not require continuing education on conventional mortgage products.

Question 61

Which is NOT a part of the Gramm-Leach-Bliley Act? Choose only ONE best answer. ``` A Financial Privacy Rule B Pretexting Provisions C Red Flags Rules D Safeguards Rule ```

Answer 61

The Red Flags Rules are contained in the Fair and Accurate Credit Transaction Act, not the Gramm-Leach-Bliley Act

Question 62

``` Which is a voluntary lien? A assessment B mechanic's C mortgage D property tax ```

Answer 62

A mortgage is considered a voluntary specific lien, meaning that it is placed with the consent of the owner, and it applies to a specified property.

Question 63

What federal law prohibits making a loan to a customer without verifying the customer's ability to repay the loan?

Answer 63

The Home Ownership and Equity Protection Act (HOEPA) establishes disclosure requirements, prohibits deceptive and unfair practices in lending, and it requires verification of a borrower’s ability to repay a high-cost loan.

Question 64

While it is illegal to ask or consider the race or national origin of an applicant, which federal legislation requires that this information be requested from every applicant to monitor whether discriminatory practices are being used? Choose only ONE best answer. ``` A Equal Credit Opportunity Act B Fair Credit Reporting Act C Home Mortgage Disclosure Act D TILA ```

Answer 64

The Home Mortgage Disclosure Act requires that the applicant be asked their race or national origin for monitoring purposes.

Question 65

``` ABC Bank receives a change of address request from a consumer. What requires the bank to follow up with her to verify the validity of the request? A Federal Reserve B Red Flag Rules C SAFE Act D Truth in Lending Act ```

Answer 65

Section 114 of the FACT Act is known as the Red Flags Rules, which, among other things, requires financial institutions and creditors to implement a written identity theft prevention program.

Question 66

Discount points refer specifically to points paid ``` A for documentation and closing fees. B for servicing charges and administration costs. C to cover loan origination fees. D to lower borrower’s interest rate. ```

Answer 66

Discount points are a type of prepaid interest or fees mortgage borrowers can purchase that lowers the amount of interest they have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers the loan's interest rate by one-eighth to one one-quarter of a percent

Question 67

``` In order to comply with HMDA, which is NOT a question a loan originator may ask a borrower? A marital status B national origin C race D religion ```

Answer 67

Religion is not a question that a loan originator may ask relevant to HMDA, since it is in no way included in government monitoring under the guidelines of the Home Mortgage Disclosure Act.

Question 68

A borrower is buying a house for $100,000. He provides a down payment of $5,000. If he pays two discount points, what is the total cost of the points?

Answer 68

He would pay $1,900 because $95,000 x 0.02 = $1,900. Discount points are paid on the mortgage amount. The down payment is separate.

Question 69

A borrower's stable monthly income is $2,500. He has three monthly debts: $250 car payment, $100 personal loan payment, and $50 credit card payment. What is the maximum monthly mortgage payment he would qualify for using the total debt to income ratio for a conventional loan?

Answer 69

Total DTI ratio is calculated as: $2,500 (income) multiplied by (x) 0.36, which equals $900. From the $900, you must subtract his monthly debts ($250 + $100 + $50) which total $400. So, this leaves $500 to be used. If he could pay off some of his debts and reduce his total of other long-term monthly obligations, he would be able to qualify for a larger mortgage payment.

Question 70

A veteran needs two documents to obtain a VA loan

Answer 70

DD-214 & Certificate of Eligibility (COE) Which is issued by the VA to those who qualify for VA loans and is required by a lender to establish the amount and status of the veteran's eligibility under the VA loan guarantee program. The DD-214 is the official military discharge paper.

Question 71

Which was the first major legislation to directly affect equal rights to ownership of real property?

Answer 71

The Civil Rights Act of 1866 prohibits racial discrimination in all property transactions in the United States.

Question 72

The Closing Disclosure must be made available how many business days before closing?

Answer 72

one business day prior to closing. The other documents must be given to consumers within three business days of the completed loan application

Question 73

``` Which document is NOT required at closing? closing? A Loan Estimate B Closing Disclosure C Initial Escrow Statement D Promissory Note ```

Answer 73

The Loan Estimate is given to borrowers within three business days of applying for mortgage loan.

Question 74

Form 4506-T is used to

Answer 74

Form 4506-T gives the lender permission to request transcripts of federal tax returns from the IRS to document the borrower’s income..

Question 75

The Home Owner Equity Protection Act is also known as what section under what Act or Reg?

Answer 75

HOEPA is also known as Section 32 of the Truth in Lending Act.

Question 76

A borrower is applying to refinance his mortgage. His first mortgage is $25,000 at a 9% rate. He plans to get cash out, up to $40,000. He qualifies for an 80% LTV and his house appraises for $100,000. Shortly before closing, the title exam shows $23,000 in bond liens. Closing costs total $6,000. How much cash will he receive at closing?

Answer 76

$100,000 X 80% = $80,000-$25,000-$23,000-$6,000 = $26,000

Question 77

What federal legislation allows the borrower to challenge the value stated on an appraisal report?

Answer 77

ECOA Since the property is being used as collateral for the loan, certain determinations are made based on the accuracy of the appraisal. Property condition and loan-to-value are dependant on accuracy, and the Equal Credit Opportunity Act allows the borrower to challenge that information

Question 78

At closing, who issues a clear to close?

Answer 78

clear to close the loan is issued by the lender, giving permission to close the loan.

Question 79

The legislation that restricts the circumstances under which a financial institution may disclose a consumer's personal financial information to non-affiliated third parties is the

Answer 79

The federal Gramm-Leach-Bliley Act, which was passed by Congress in 1999, regulates the handling and disclosure of consumers’ private financial information.

Question 80

A nontraditional loan is defined by the SAFE Act as

Answer 80

The SAFE Act defines a nontraditional loan as anything other than a 30-year fixed rate loan.

Question 81

What is the more common name of Title V of HERA?

Answer 81

The SAFE Act is Title V of HERA The Housing and Economic Recovery Act of 2008 was a piece of financial reform legislation passed by Congress in response to the subprime mortgage crisis. The act allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers.

Question 82

What is BSA/AML, what does it require?

Answer 82

The Bank Secrecy Act/Anti-money laundering act This federal law requires financial institutions to file reports of cash transactions exceeding a daily aggregate amount of $10,000

Question 83

Which rule requires all financial institutions to design, implement, and maintain safeguards to protect customer information while it is in the custody and control of the institution and its agents?

Answer 83

The safeguard rule requires all financial institutions to design, implement, and maintain safeguards to protect customer information while it is in the custody and control of the institution and its agents

Question 84

What is the MARS rule?

Answer 84

The Mortgage Assistance Relief Services (MARS) Rule makes it illegal to charge upfront fees and requires specific disclosures in ads and when you forward a lender’s offer to a homeowner. The rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable

Question 85

A lender has how many days to notify the borrower of an underwriting decision?

Answer 85

A lender has 30 days to notify the borrower of an underwriting decision

Question 86

As a result of the Mortgage Disclosure Improvement Act, how soon can a residential loan close?

Answer 86

The soonest that a residential loan can close is 7 days after the disclosures are delivered or placed in the mail

Question 87

Which law enacted mandatory cancellation of PMI under certain circumstances?

Answer 87

HPA-Homeowners Protection act details when PMI can and cannot be cancelled

Question 88

The estimate for most settlement charges shown on a Loan Estimate must be available for at least ____ business days.

Answer 88

The terms on the Loan Estimate must be available for 10 business days

Question 89

The APR on an initial Loan Estimate for a 30-year fixed rate loan is 5.99%, and the APR on the final Closing Disclosure is 6.25%. After redisclosure, how long must the borrower wait to close the loan?

Answer 89

After redisclosure, the borrower wait three (3) business days to close the loan

Question 90

What is HOEPA, and what does it consider as a "higher-priced loan"

Answer 90

Home Ownership and Equity Protection Act of 1994. One of the elements of the HOPEA act is that a higher-priced loan is one that an APR that exceeds the applicable average prime offer rate by at least 1.5% on first liens.

Question 91

which federal law would you find the definition of a nontraditional loan?

Answer 91

The SAFE Act defines a non-traditional loan, Secure and Fair Enforcement for Mortgage Licensing Act

Question 92

A reverse mortgage must be repaid if the home is unoccupied by the borrower for how long?

Answer 92

If the borrower does not occupy the property for 12 consecutive months, the reverse mortgage would be cancelled

Question 93

What is HECM?

Answer 93

The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through an FHA-approved lender. The HECM is FHA's reverse mortgage program that enables you to withdraw a portion of your home's equity

Question 94

A for-profit MLO who claims to be a "counselor" in an ad about loan modification would be in violation of what law?

Answer 94

TILA prohibits MLOs from referring them themselves as counselors

Question 95

Which regulation ensures that some borrowers have the right of rescission for how many business days after a loan contract is signed?

Answer 95

Regulation Z/TILA is the regulation that ensured that a borrower has 3 days the right to rescind

Question 96

To address the problem of property flipping, appraisers must analyze the transfer history of a property for the previous

Answer 96

FHA requires that the last three (3) years are analyzed

Question 97

What federal legislation requires the term "equal housing lender" to be used in any advertisement that is broadcast over the airwaves?

Answer 97

This is a requirement of the Fair Housing Act

Question 98

What are the two Acts that protects classes such as race, sex, national origin, religion, Ethnicity etc? And what are the difference?

Answer 98

Equal Credit Opportunity Act The ECOA forbids credit discrimination on the basis of race, color, religion, national origin, sex, MARITAL STATUS & AGE, whether you receive income from a public assistance program. Fair Housing Act FHA also forbids discrimination based on race, color, religion, sex, national origin, HANDICAPS & FAMILIAL STATUS

Question 99

Which federal law was intended to provide some remedy for the illegal practice of redlining?

Answer 99

Redlining is led to the creation of HMDA rules and regulations

Question 100

What is housing expense ratio (front end) and back end ratio formula?

Answer 100

The housing expense ratio is the percentage of your gross monthly income devoted to housing expenses. Typically, this ratio should not exceed 28%. the lender will measure the person’s income before taxes against housing expenses to find out how much risk is involved. Typical housing expenses include the principal, interest, property taxes, insurance and HOA fees. The back-end ratio, also known as the debt-to-income ratio, is a ratio that indicates what portion of a person's monthly income goes toward paying debts. Total monthly debt includes expenses, such as mortgage payments (principal, interest, taxes, and insurance), credit card payments, child support, and other loan payments. Back-End Ratio = (Total monthly debt expense / Gross monthly income) x 100 Lenders use this ratio in conjunction with the front-end ratio to approve mortgages. Typically, this ratio should not exceed 36%.

Question 101

What is sales comparison approach?

Answer 101

Compare minimum of 3 similar houses and is required by most secondary lenders to ensure an accurate estimate of value

Question 102

When qualifying a borrower, an installment debt does not need to be included in the debt to income ratio when the balance of the term of repayment is less than how many months?

Answer 102

Installment/Credit debt of 10 payments are less not counted when calculating the DTI

Question 103

In a loan closing, hypothecation occurs. This is described as:

Answer 103

Hypothecation is using property as collateral without surrendering use or possession of it.

Question 104

Which of the following requires licensing? 1. Making an underwriting decision 2. Offering or negotiating loan terms. 3. Communicating details of a loan closing arrangements 4. Analyzing a loan application that is received from a consumer

Answer 104

Offering or negotiating loan terms requires MLO license

Question 105

Who is exempt from licensing under the safe act?

Answer 105

One can negotiate the terms of a loan on behalf of their immediate family member with a license

Question 106

Under the Red Flags Rule, the FTC requires all mortgage lenders to have written policies and procedures in place to address which of the following?

Answer 106

Identity Theft

Question 107

During the loan process, you find HMDA government monitoring information on

Answer 107

Under HMDA guidelines, Section X of the standard Residential Loan Application must be filled out even if the borrower does not wish to furnish the information. However, in the case of a face-to-face Page 18 interview, the loan officer can still mark the “I do not wish to furnish this information” box, but must fill in the application according to a visual observation or the borrower's surname.

Question 108

Which law requires notification to a borrower before the servicing of a loan is transferred to someone else?

Answer 108

RESPA requires a Servicing Transfer Statement to be sent to the consumer if the loan servicer sells or assigns the servicing rights of the loan to another service provider.

Question 109

What is a provision in a mortgage enabling the lender to demand full repayment if the borrower sells the mortgaged property or partial interest in a mortgaged property?

Answer 109

An alienation clause requires the mortgagor to repay the entire balance of the loan if the property is sold, transferred, or otherwise abandoned

Question 110

Which regulation encourages financial institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices?

Answer 110

The Community Reinvestment Act is intended to ensure that all neighborhoods are served by financial institutions

Question 111

A borrower has a stable monthly income of $4,000 and recurring debts of $600. If he's getting an FHA loan, what's the maximum monthly payment for which he would qualify?

Answer 111

Using the payment-to-income ratio of 31%, we get $1,240. But using the total debt to income ratio, we find: $4,000 (income) multiplied by 0.43, which equals $1,720. From that, you subtract monthly debts of $600, leaving $1,120

Question 112

Difference between Contracts and Deeds

Answer 112

Copy of the Sales and Purchase Contract (if new purchase). ​• ​Copy of the deed and note (if a refinance).

Question 113

What do you need to collect from an applicant As a proof of their Employment Income?

Answer 113

``` ​• 2 years of W-2s. ​• ​30 days previous paystubs. ​• ​Self-employment income. ​• ​2 years personal tax returns. ​• ​2 years business tax returns. ​• ​Profit and Loss Statement (year-to-date report). ​• ​Balance Sheet (snapshot-in-time). ```

Question 114

Retirement Income

Answer 114

​• ​Social Security benefits statement. ​• ​Pension award letter from company. ​• ​Document other income with 1099s. ​• ​These must continue for 3 years past application date to be considered as income

Question 115

These must continue for 3 years past application date to be considered as income

Answer 115

​• Alimony and child support income. ​• ​A copy of the divorce decree or separation agreement. ​• ​12 months canceled checks of alimony or child support received.

Question 116

‘Investment property income’ & ‘Other income’ when applying for a loan

Answer 116

​• ​A copy of the rental agreement. Other income: ​• ​2 years documentation of commission, bonus or dividends income. ​• ​2 years documentation of stocks and dividends paid. ​• ​2 years of automobile income that was paid in excess of expenses. ​• ​Disability benefits with a remaining term of at least 3 years. • ​Unemployment benefits that are documented, have been received for the past   2 years and are likely to continue.

Question 117

Assets when applying for a loan

Answer 117

​• ​2 months bank/brokerage statements as check for “seasoned” funds. (Don’t want an undisclosed “gift” deposited a week before closing to be used for closing costs.)

Question 118

Identification & Contact Information when applying for a loan

Answer 118

Identification:​ Driver’s license, passport or other government identification with a photograph as required by the USA Patriot Act. ​• ​ Contact info: ​• ​Name and phone number of real estate agent. • ​Name and phone number of hazard insurance company. ​• ​Name and phone number of title company. ​• ​Name and phone number for homeowners or condo associations.

Question 119

Address and Employment History when applying for a loan

Answer 119

​• ​2 years of residential addresses. | • ​2 years of employment history.

Question 120

The guidelines for inclusion of income for ‘gross monthly income’ are as follows:

Answer 120

​• ​Employment income must be verifiable for the past 2 tax years; 2 years of W-2s will suffice. Any source of income that isn’t verifiable isn’t acceptable to the lender. ​• ​Commission, overtime, bonus, part-time, interest and dividend income must be averaged over 2 years. ​• ​Automobile allowances must be documented over the past 2 years. Retirement and pension income must continue for 3 years beyond the application date in order to be included. ​• ​Receipt of alimony or child support payments must continue for 3 years beyond the application date in order to be included. ​• ​Disability benefits with a remaining term of at least 3 years. ​• ​Unemployment benefits that are documented, received for the past 2 years and are likely to continue. ​• 75 % of rental income from an investment property can be included; rent from boarders in the primary residence or second home may not be included. ​• The applicant will most likely be required to sign one or two IRS forms: an IRS 4506-T (Request for Transcript of Tax Return) and/or an IRS 8821 (Tax Information Authorization) so that the lender can verify their income.

Question 121

What is the expiration of a lease agreement for rental housing or an automobile when calculating borrower’s monthly debt obligations?

Answer 121

Because the expiration of a lease agreement for rental housing or an automobile typically leads to either a new lease agreement, the buyout of the existing lease, or the purchase of a new vehicle or house, Fannie Mae requires that lease payments always be considered a recurring monthly debt obligation, regardless of the number of months remaining on the lease.

Question 122

If the credit report doesn’t show a required minimum payment amount for a debt, what should the lender do?

Answer 122

the lender should use an amount equal to five percent of the outstanding balance.

Question 123

``` Which piece of information is NOT required in order to have a legal loan application? A. Consumer name B. Consumer monthly income C. Estimated property value D. Consumer signature ```

Answer 123

Signature is not required on a loan application

Question 124

Which form is used to summarize the information in the loan package?

Answer 124

Fannie Mae 1008 – Transmittal Summary

Question 125

If a mortgage is secured by the primary residence, Fannie Mae allows how many total properties to be financed?

Answer 125

No limit

Question 126

A co-borrower whose income is used to qualify must sign the:

Answer 126

Both note and mortgage

Question 127

Fannie Mae requires a non-qualifying spouse whose income is not used in qualifying to sign the:

Answer 127

Mortgage

Question 128

What is included in an escrow impound? Is title insurance included?

Answer 128

Property tax, Mortgage insurance (PMI) and Homeowners insurance (MIP) flood insurance)

Question 129

GRM

Answer 129

Gross Rent Multiplier = Property Price / Gross Annual Rental Income What Does Gross Rent Multiplier Mean In Practice? In the example above, we determine that the property would have a GRM of 6.25. Out of context, that means practically nothing. However, if we were to find out that most other similar properties in the area had GRMs of 8-9, the fact that the property in question has a GRM of 6.25 could make it a profitable investment. GRM can also be used to estimate the value of an income-producing property when it’s value is not known. For instance, if we know that a property produces about $100,000 of income per year, and the average GRM of similar properties in the area is about 7, we could multiple the two ($100,000 * 7) to create an estimated property value of $700,000. While this is by no means an exact calculation, it can provide a workable estimate for a property investor to use when comparing a variety of properties. Finally, if you know what the value of a property is, and you know the average GRM for properties in the area, you can use the Gross Rent Multiplier formula to calculate the expected rent for the property. So, for instance, if a property is valued at $850,000, and the average GRM in the area is 8, you could divide the property value by the average area GRM to determine expected rental income.